- The latest Nairobi Securities Exchange monthly Barometer shows month-on-month growth comparing January this year and December last year, with prospects looking much better after a bear run last year.
- Market capitalisation increased by 0.08 per cent in January to $9.11 billion from $9.05 billion in December 2023.
- The NSE 20 and NSE 25 Share Index recorded increases in activity of 0.89 per cent and 1.32 per cent, respectively, while the All-Share Index experienced a 0.08 per cent increase.
Nairobi Securities Exchange showing recovery signs
Kenya’s capital market is showing a sign of recovery this year, with the Nairobi Securities Exchange (NSE) recording a gain in January, albeit minimal, as large stocks pay investors.
This is despite interest rates in advanced economies remaining high into 2024, a trend that has seen foreign investors focus on home markets, mainly the United States.
The latest NSE monthly Barometer shows month-on-month growth comparing January this year and December last year, with prospects looking much better after a bear run last year.
Market capitalisation increased by 0.08 per cent in January to $9.11 billion from $9.05 billion in December 2023.
“The NSE 20 and NSE 25 Share Index recorded increases in activity of 0.89 per cent and 1.32 per cent, respectively, while the All-Share Index experienced a 0.08 per cent increase,” NSE noted in the report.
While the market cap remains close to a 10-year low, the slight improvement comes amid expectations by financial experts that East Africa’s biggest bourse will record improved performance this year, buoyed by investors’ confidence in the Kenyan economy, despite a still challenging operating environment for the private sector.
This is mainly due to tax policies, as the government pushed for more revenues to bridge the country’s budget deficit.
Investors deployed hedging strategies, including single stocks and index futures, to mitigate market risk in 2023.
Turnover split as of January 2024
During the month under review, telecommunication company Safaricom was leading, accounting for 35.80 per cent of the total turnover, with the top ten companies by turnover accounting for 93.86 per cent of the total turnover for January 2024.
Other top stocks were Equity Bank, KCB, Stanbic Bank, East African Breweries Limited (EABL), Cooperative Bank, BOC Kenya, NCBA, Standard Chartered Bank, and Bamburi Cement.
The construction and allied sector, however, recorded the highest gain of eight per cent, while on the other hand, the energy and petroleum sector recorded the highest loss of 2.86 per cent.
Stock investors at the NSE lost at least $3.4 billion in paper wealth last year on capital flight as the shilling slid against major currencies.
This is according to the Capital Markets Authority (CMA) quarterly statistical bulletin for the period ended December 31, which shows the total market capitalization at the Nairobi bourse closed at $9.05 billion, compared to $12.4 billion in the same period in 2022.
In comparison, wealth erosion for the Nairobi bourse stood at 23.3 per cent in 2022, amounting to $3.9 billion, while the performance of the NSE 20 index was essentially unchanged, having fallen by 10.3 per cent.
Zimbabwe remains an outlier in African markets (African Equity Markets Returns – January 2024), while Egypt recorded the highest return on both year-to-date and month-on-month at 14.22 per cent.
On the other hand, Namibia recorded losses in both the year-to-date and month-on-month, recording 4.84 per cent declines.
Kenyan currency and economy
Weak currencies have continued to take a toll on the African economies, where the majority remain net importers, mainly finished goods and petroleum products, while they export raw materials.
The Kenyan shilling continued to depreciate against the dollar, with the exchange rate standing at an average of Ksh160.75to a dollar as of January 31 (last month), a 2.74 per cent increase from Ksh156.46 as of December 29 last year.
East Africa’s biggest economy grew by 5.9 per cent in the third quarter of 2023 compared to 4.3 per cent growth in the corresponding quarter of 2022.
The growth was mainly due to a rebound in agricultural activities, according to the Kenya National Bureau of Statistics (KNBS), which grew by 6.7 per cent during the period under review, compared to a 1.3 per cent contraction in a similar period in 2022.
Other sectors that supported growth during the period under review included finance and insurance (14.7 per cent), accommodation and food service (26.0 per cent), and information and communication (7.3 per cent).
The country’s overall year-on-year inflation rate as measured by the Consumer Price Index (CPI) was 6.9 per cent in January, a slight increase from 6.6 per cent in December 2023.
Prices of commodities under transport, housing, water, electricity, gas, and other fuels, as well as food and non-alcoholic beverages, increased by 10.6, 9.7, and 7.9 per cent, respectively.
This means that prices of the commodities increased by 6.9 per cent between January 2023 and January 2024.
The food and non-alcoholic beverages index increased by 0.4 per cent between December 2023 and January 2024. The housing, water, electricity, gas and other fuels index increased by 1.6 per cent between January 2023 and January 2024.
“This was mainly due to increases in the prices of gas and cement,” KNBC director general Mcdonald Obudho noted.
Prices of electricity of 200 kWh and 50 kWh rose by 11.4 and 13.7, respectively, while kerosene dropped by 2.4 per cent during the review period. The Transport index decreased slightly by 0.9 per cent within the same period, mainly attributed to decreases in petrol and diesel prices by 2.3 per cent and 2.5 per cent, respectively.
In the recent release of the IMF World Economic Outlook, global growth is projected at 3.1 per cent in 2024 and 3.2 per cent in 2025, with the 2024 forecast 0.2 percentage points higher than that in the October 2023 World Economic Outlook (WEO).
This is based on the greater-than-expected resilience in the United States, several large emerging markets and developing economies, and fiscal support in China.
However, the forecast for 2024–25 is below the historical (2000–19) average of 3.8 per cent, with elevated central bank policy rates to fight inflation, a withdrawal of fiscal support amid high debt weighing on economic activity, and low underlying productivity growth.
Inflation is falling faster than expected in most regions amid unwinding supply-side issues and restrictive monetary policy.
Global headline inflation is expected to fall to 5.8 per cent in 2024 and 4.4 per cent in 2025, with the 2025 forecast revised down.
Impact of capital markets in Africa
Like any other country, Kenya continues to bank on its capital market to grow investments, mainly listed companies seeking to raise funds for expansion.
The significance of developing domestic capital markets to finance priority sectors and drive economic development is increasingly being acknowledged by policymakers in Africa.
For instance, the African Union (AU) Agenda 2063 prioritizes the development of capital markets. In particular, it emphasises strengthening domestic resource mobilization and doubling equity markets’ contribution to development financing.
Similar support is found in several national visions, including Nigeria and Rwanda (2020), Vision 2030 for Kenya and Zambia and Uganda’s Vision 2040.
About $1 trillion in assets are currently held by pension, insurance and collective investment vehicles across sub-Saharan Africa, according to FSD Africa (Financial Sector Deepening), a specialist development agency funded by the UK’s Department for International Development.
“These funds have a serious problem finding enough investments that meet their risk and return requirements – there just isn’t enough ‘product’ for them,” Director Capital Markets, Evans Osano, told the Exchange.
It means there are projects today, such as infrastructure, that are not getting financed.
But this also has implications for the long-term ability of pension funds to produce adequate incomes for pensioners, Osano noted.
Funding critical infrastructure
Capital markets provide long-term financing for priority sectors. Africa faces substantial long-term financing needs for the real and social sectors.
FSD Africa estimates the funding gap for SMEs, infrastructure, and housing is over $300 billion annually.
The World Bank estimates that Africa’s infrastructure deficit reduces per capita GDP growth by two percentage points yearly.
As a result, this trend is delaying the pace of poverty reduction strategies. Equally, the Centre for Affordable Housing in Africa estimates a housing deficit of at least 25 million units in Nigeria, Kenya, Angola, Ethiopia, Cameroon and Cote d’Ivoire.
“Local currency capital markets can contribute to narrowing the financing gap across these sectors. Capital markets provide long-term funds to growing businesses, infrastructure and housing. Capital markets can also support the financing of social sectors, including health and education,” Osano said.
According to the World Bank, the markets are also vital in complementing reductions in concessional funding, where about half of the countries in Sub-Sahara Africa are classified as middle-income. In the last decade, 10 countries, including Kenya, Nigeria, Ghana and Zambia, joined this middle-income rank.
This implies that these countries will gradually be weaned off the World Bank Group’s concessional lending window, the International Development Association (IDA). Financing global challenges is also another role that the capital markets play.
According to the African Development Bank (AfDB), the share of Africans living in urban areas is set to rise from 36 per cent in 2010 to 50 per cent by 2030. Urbanization at this rate can cause significant stress to infrastructure, social services and the proliferation of slums.
According to the United Nations Environmental Program (UNEP), Africa is projected to bear the most significant impact of climate change, with the costs of adaptation being estimated between five and 10 per cent of GDP.